Farmland Partners: Growth in Agriculture

05/25/2017 2:52 am EST

Focus: REITS

Briton Ryle

Editor, The Wealth Advisory

I will not be selling out of REITs just because interest rates are rising. We have nice gains with these stocks, and they consistently raise their dividends, asserts Brit Ryle, income and growth expert and editor of The Wealth Advisory.

Plus, we know the Fed is not going on a prolonged rate hike campaign. Three small hikes are not going to have much of an impact on REITs.

So, in a general sense, I don’t expect a lot of downside for REITs. I’m actually expecting a lot of upside, even with the rate increases.

Farmland Partners (FPI) invests in working farms and then rents the land either back to the original farmer or (if the farm comes from an estate sale where the family has no interest in continuing operations) rents it back to one of the largest farming companies in the country.

The largest farmland REIT on the market took a little hit last month after presenting earnings and revenue below expectations. Analysts were looking for growth despite a stagnant commodities market.

That’s a case of “city boys” having no idea how to predict farming profits. It’s tough to understand farming if you’re not willing to get your boots dirty.

We already knew that ag product prices are holding steady these days. And how is there going to be revenue growth if there’s no change in sale prices? Plain and simple, there isn’t.

But that’s ok, because we’re looking at the long term here. And that future is going to include more people who need more of the things that farms produce.  As populations continue to increase, so will profits from farms and farming companies like FPI.

I’m expecting ag product prices to stay relatively flat this year. Our dividend is going to be safe, but we’re not likely to see profits grow until the demand for ag products increases.

Rest assured, that’s going to happen. It’s inevitable. FPI is still a “buy” under $12.50. I’m lowering the 12-month target to $15 to account for flat commodity prices.

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